Amid concerns that Mirant may be likely to file for Chapter 11 bankruptcy protection if cannot extend its near- and intermediate-term debt maturities, Standard & Poor’s Ratings Services (S&P) on Monday lowered the Atlanta-based energy supplier’s ratings to “CC” from “CCC.” Mirant has about $9.7 billion in debt, including lease-related debt.

Mirant has asked creditors holding approximately $3.5 billion of its unsecured debt that matures on or before May 1, 2006, to amend terms to extend their debt maturities until July 15, 2008 (see Daily GPI, June 23). The amendment would be achieved by creditors exchanging their obligations for new obligations in which Mirant will pledge essentially all of its remaining unencumbered assets and grant warrants on its common equity.

S&P analysts noted that the ratings action followed Mirant’s disclosure that it has also asked its bank group to vote on a prepackaged Chapter 11 bankruptcy filing plan, “which could indicate difficulties completing the exchange offer. The threshold for completing a prepackaged bankruptcy filing (two-thirds vote of creditors needed for approval) is less than for the exchange offer (requiring the approval of at least 85% of outstanding creditors).”

Last week Mirant also disclosed that its Mirant Americas Generation LLC unit received notice of a default on credit facilities from Lehman Brothers Commercial Paper Inc. because of its failure to deliver March 31, 2003, financial statements on a timely basis.

“In addition to concerns that Mirant may be more likely to file for Chapter 11 bankruptcy protection, the lowering of the corporate credit rating reflects Standard & Poor’s opinion that the planned exchange offer (often referred to as an ‘out-of-court’ restructuring) qualifies as a coerced distressed exchange,” said S&P analysts. “Standard & Poor’s believes that Mirant would have great difficulty meeting all of its obligations as originally promised absent the exchange.”

Under S&P criteria, exchange offers are considered coercive “by virtue of the investor’s contemplation that refusal to accept the offer may lead to an even worse alternative, which in this case could involve a voluntary bankruptcy filing and the use of the bankruptcy code’s ‘cramdown’ provisions.” In recently Securities and Exchange Commission filings, noted analysts, Mirant has indicated that it could seek bankruptcy protection, whether through a prepackaged transaction or otherwise, if the exchange offer is not completed.

“If the exchange offer were to be completed, Standard & Poor’s would lower Mirant’s corporate credit rating to `SD,’ which represents selective default and then immediately assign a new rating based on Mirant’s prospective creditworthiness. Such a rating is likely to be higher than `CC’. If the exchange offer is not completed, Standard & Poor’s believes that a voluntary bankruptcy filing likely would occur shortly thereafter, and the ratings would be lowered to `D’ upon such an event.”

Mirant’s obligations also were put on S&P’s CreditWatch negative from developing. The ratings agency analysts expect to resolve the CreditWatch listing following the outcome of the exchange offer and pending a review of Mirant after a “successful debt restructuring.” Mirant’s exchange offers are set to expire on July 14, unless they are extended, according to S&P.

Besides the parent corporation, S&P also lowered the trust preferred stock rating on the company to ‘C’ from ‘CC’; and the senior secured debt rating on Mirant Mid-Atlantic LLC to ‘CC’ from ‘CCC’. These ratings remain on CreditWatch with developing implications.

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